Vermont Passes Strictest Subscription Renewal Law

Companies that offer subscriptions that renew automatically now have to pay attention to tiny Vermont, which just passed the strictest automatic renewal law in the country. Several states, including California, have laws governing subscription renewals that require sellers to clearly and conspicuously present the terms of the offer, get express consent from the consumer, provide an easy method to cancel, and send a reminder prior to the start of a renewal term. Vermont’s law adds two new twists, however. First, the auto-renewal provision must be presented in boldface type. Second, consumers have to take two actions to accept the renewal offer.

California, which prior to passage of the Vermont law had perhaps the most restrictive law on the subject, gives companies a great deal of latitude in deciding how to meet the “clear and conspicuous” standard – it can be boldface, larger type face than surrounding text, contrasting color or font, or text that is set off by surrounding text by symbols or other marks. Vermont’s law will give no such latitude. If the renewal plan text is larger font, contrasting color, and surrounded by symbols, but is not in boldface, it will not comply.

The two-action consent requirement means that in both online and written offers, the company must get a consumer’s consent through both:

  1. A check box, signature, or other similar method that shows consent specifically to the auto-renewal terms, and
  2. A separate consent (like a “Submit” or “Purchase Now” button) to the overall order.

The Vermont law covers both business-to-consumer and business-to-business subscriptions, although there is an exemption for insurance contracts and contracts between a consumer and a financial institution or credit union. By including B2B, the Vermont law goes well beyond California’s law, which only protects consumers. This means a wide variety of SaaS businesses need to look at their subscription and renewal practices, if they are doing business with Vermont companies.

Vermont’s new law will take effect on July 1, 2019, and only applies to contracts with an initial term of one year or more, and subsequent terms that are longer than one month. So, if a company offers a product or service with an initial term of less than a year, and the term renews on a monthly, quarterly, or semi-annual basis, the company is not covered. Similarly, companies that offer simple monthly subscriptions, like many streaming services and subscription boxes, are not covered. Many magazine subscriptions have an initial term of one year, and typically renew for terms of a year, so these most likely will be covered by the new law.


California’s Subscription Renewal Law About To Change

On July 1, 2018, California’s subscription auto-renewal law is about to change in a couple of important ways. This law applies to e-commerce vendors who sell to consumers on a subscription basis, where the subscription renews automatically. For example, companies that offer subscription box services are generally subject to this law. Under the law as it currently stands, vendors must disclose the terms of the automatic renewal policy in a clear and conspicuous manner at the time of the original purchase, get the consumer’s affirmative consent before charging the consumer, and explain how to cancel the subscription.

Beginning July 1, vendors will have to allow online cancellation if the subscription was originally commenced online. Such vendors cannot require that their customers use phone or snail-mail to cancel. Also, if the subscription offer includes a free gift, trial subscription, or promotional pricing, vendors must notify consumers how to cancel before they are charged (or before the promotional pricing expires and they are charged full price). Vendors must explain the price to be charged when the promotion or free trial ends. If the initial offer is at a promotional price that will increase later, the vendor must obtain the consumer’s consent to the non-discounted price prior to billing.

Auto-renewing subscriptions have been fertile ground for California class action attorneys, who have made a cottage industry out of shaking down vendors that fail to comply with the state law. Consequently, it’s important for any company whose business model is based on consumer subscriptions that renew automatically to update their terms of service and selling processes before the new law takes effect. It doesn’t matter if the company isn’t based in California, either – the law applies if the consumer is a resident of California. Finally, keep in mind that more than half of US states have a law dealing with auto-renewing subscriptions.

Website Protection from Copyright Infringement Claims

shortcuttingIf you operate a website, you may have to worry about copyright infringement claims. This is particularly true if you have a blog, or if you allow visitors to post photographs, music clips, videos, or written content. The visitors may be posting content that infringes on someone’s copyright, and you don’t want to be responsible.

Fortunately, the Digital Millenium Copyright Act (DMCA) helps website owners insulate themselves from copyright infringement claims. There are two steps to this process, and both are equally important and essential. Unfortunately, too many website owners focus on the first step, and overlook the second. Without both, the website owner has no protection under the DMCA from copyright infringement claims.

The first requirement is that your website terms of service should have a process for people to notify you of potential copyright infringement claims. This is typically called a “takedown notice.” The notice informs you that there is material on your website that may infringe a copyright, and has to conform to specific requirements outlined in the DMCA. Your process must cover taking down or disabling access to the potentially infringing material, and giving the person who posted it an opportunity to challenge the takedown notice. That’s the first part of insulating yourself from copyright infringement claims.

The second part, which is often overlooked, is registering an “online agent” with the US Copyright Office. The online agent is a person designated to receive notices of potential copyright infringement. You go to this page at the website, where you can download, print out and mail in what’s called an “Interim Designation of Agent to Receive Notification of Claimed Infringement” form. On the form, you list the full legal name of your company. There is a base fee of $105 that covers that one name. Then you can list additional names under which you are doing business. For example, here you would list your website address, or if you operate more than one website, all your website addresses. For each group of 10 or fewer, there’s an additional fee of $35. So if you have a corporation, and you run one website, you would list your corporate name, and the website address, and pay a fee of $140. When choosing your designated agent to list on the form, you want to pick someone who you know is going to be in that role for an extended period of time, because you must pay additional fees to change your designated agent.

By following both of those two steps, website operators can take advantage of the protections from copyright infringement claims provided by the DMCA.
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Online Privacy Rights for Minors

In a previous post, I wrote about a new California law addressing online privacy rights of minors. That law (California Business & Professions Code Section 22580 to 22582), which took effect on January 1, 2015, does a couple of things. As I wrote in the previous post, the law restricts the kinds of products that can be marketed online to minors under the age of 18. The second thing the new law does is impose content-removal obligations on these website and mobile app operators. That is the subject of this post. The law protects minors who live in California, but it broadly applies to websites and mobile apps located anywhere, if they have users located in California. Since California has more than 9 million residents under the age of 18, out-of-state website and mobile app operators cannot afford to assume that the law doesn’t reach them.

These new content-removal obligations apply to websites and mobile apps that are directed at minors, and also at any websites or mobile apps where the operator has actual knowledge that minors are using it. The operators of these websites and apps must permit minors who are registered users to remove or, if the operator prefers, request and obtain removal of, content or information posted by that registered user. The operator also must notify minors who are registered users that they have these content-removal rights, and provide clear instructions on how to go about getting content or information removed. The operator also has to notify the minors who are registered users that the removal does not ensure complete or comprehensive removal of the content or information.

The operator (or a third party) does not have to erase or eliminate the content or information in any of the following circumstances:

  1. If any other provision of state or federal law requires keeping that content or information.
  2. If the content or information was stored on or posted to the website or mobile app by a third party other than the minor, including content or information that was posted by the minor that the third party has republished or reposted.
  3. If the operator anonymizes the information posted by the minor, so that the minor cannot be individually identified.
  4. If the minor does not follow the instructions on how to obtain the removal of the content.
  5. If the minor has received some kind of compensation for posting the content.

An operator will be considered in compliance with its obligations if it makes the content no longer visible to registered users or the public, even if the content still remains on the operator’s servers. Also, the operator will be in compliance if it removes the content, and then the content remains visible because a third party has reposted it.

If you are operating a website or mobile app directed at minors, or if you know that minors are using your website or app, now is a good time to start implementing procedures to comply with this new law. You will need to set up a mechanism for minors to remove content themselves, or you will need a mechanism for minors to request that you remove the content. You will also need notice provisions. While you might try to implement these changes only with respect to minors who are in California, it may be easier to grant the same rights to minors no matter where they live. Finally, this new law will also require changes to your website’s (or app’s) terms of use and privacy policy.

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If You Have Nothing Nice To Say…

Then say it online in California.

On September 9, California governor Jerry Brown signed a new law that prohibits businesses from having customers sign agreements to IMG_1246not post disparaging online reviews. The new law prohibits a contract for the sale or lease of consumer goods or services from containing a waiver of the consumer’s right to make any statement about the seller, its employees or agents, or the goods or services. The law also prohibits the seller from threatening or trying to enforce a provision that the new law makes illegal, or to otherwise penalize a consumer for making any statement protected under the new law.

Not only is any such waiver void and unenforceable, if a business violates the new law it will be subject to civil penalties of up to $2,500 for the first violation, and $5,000 for each additional violation. The attorney general, a district or city attorney, or the consumer can sue to collect the civil penalty. A willful, intentional, or reckless violation can bring an additional penalty of up to $10,000.

Also, the law does not prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.

This new law is the first of its kind in the US, but it is quite likely that other states will follow California’s lead, given recent attempts by businesses to punish consumers for negative online reviews. For example, over the summer the New York Post reported that a hotel in Hudson, New York, the Union Street Guest House, was fining wedding guests $500 for posting bad online reviews. The hotel posted its policy on its website, and the backlash on Yelp was rather epic. Yelpers pummeled the hotel with 1-star reviews, by noon of the day the story broke, hundreds of new 1-star reviews had been posted.

One could argue that the hotel case demonstrates that no legal remedies are necessary. The hotel had a dumb idea, and the marketplace responded with a well-deserved thrashing. Imposing civil fines would probably be unnecessary, as the hotel should have learned its lesson. On the other hand, some legal remedy might be necessary if the hotel had actually tried to deduct $500 from any online poster’s wedding deposit.

Another case occurred in Utah, also with devastating results for the business. A couple posted a negative review on Ripoff Report about an online retailer, KlearGear, in violation of KlearGear’s “policy.” When the couple refused to pay a $3,500 nondisparagement fee, KlearGear filed a negative credit report against them. The couple fought back by filing a lawsuit, and the court ordered the hapless KlearGear to pay damages in the amount of $306,750.

So what are the lessons for business owners? First, if you are a California-based business or have California customers, don’t ask or require your customers to waive their right to post online reviews, and don’t try to penalize them if they do. Keep in mind that for now, at least, the California law only applies to business-to-consumer transactions, not business-to-business. Also, the California law doesn’t specify whether the consumer must be in California, the business must be in California, or both. Because the law is so new, courts have not had a full opportunity to define the scope of the law’s coverage. Businesses that are located outside of California but who sell to consumers in California may still be subject to the law.

Another lesson is that businesses have to find more intelligent ways to deal with negative online reviews. Nobody is perfect, and every business at some point or another is going to have an unhappy customer. When that customer posts a negative online review, businesses that try to punish or argue with the customer are going to look bad, and news of these incidents has a way of spreading like a bad virus. This can result in a massive loss of business, but also may result in a large civil judgment, as we saw with the KlearGear case.

Instead, a business that receives a negative review has to look at the incident as an opportunity. It’s an opportunity to try to fix the problem and convert an unhappy customer into a happy customer. Businesses can respond to reviews on Yelp, for example. Instead of lashing out, a business should apologize for the shortcoming, and offer to fix it. Even if the customer never responds, the business is now on record as being proactive in trying to remedy the situation. In addition, without the negative review, the business might have no way of knowing that it was letting customers down in some way. The negative review gives the business a chance to reexamine its processes, products and services, and make necessary improvements.

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